A raft of implications for IHT

Published 23rd Mar 2007

Yesterday’s ‘iceberg budget’ has provoked mixed reactions, suggesting something sinister lies below the surface after a drop in income tax but corresponding hikes in both fuel duty and greener road tax

However one area that will see promising changes is Inheritance Tax (IHT). For those contemplating the worth of their estates, the Chancellor has announced an increase in the threshold, raising it from £285,000 to £350,000 by 2010.

Chief economist at Abbey, Barry Naisbitt, welcomes this development – although he does have his reservations. He commented: "The increase is certainly a move that most will welcome. However very many people - particularly those who have owned their own home for 5-10 years or more - now have substantial assets as the value of their homes have risen significantly. To account for that rise completely, the Chancellor would have had to increase the IHT threshold to around £460,000. This is an issue many hope will be revisited next year.”

However, not everyone’s reaction errs on the optimistic side. Nicholas Leeming, director of propertyfinder.com believes it will actually hinder homeowners instead of helping them:
“A rise in the threshold actually means more homes are likely to fall into the IHT bracket, not fewer as the Chancellor suggested – since the threshold was last set at £285,000, house prices have already risen a little over 10 per cent. To reach £350,000 in three years, they need rise at only 3.7 per cent per annum, barely more than inflation.
“Even with this modest increase, 15 per cent of homes will be worth this much in three years’ time. The burden will fall disproportionately on regions with the highest house prices – London and the South East.”

“High house prices are making it much harder for younger generations to get on the housing ladder,” continues Leeming. “As the Chancellor takes housing wealth from older generations when they die, less money is available through inheritance to help the finances of the younger groups. First-time buyers will therefore suffer too.”

Those who worry that they might be adversely affected by this increase have been advised to add up the value of their assets to give a rough estimate of whether there could be a potential IHT problem when they die. If this is indeed the case, don’t panic – there are various ways for Brits to guard against the way IHT will impact upon their heirs.
By Ariane Buteux

Source: ' What Mortgage '

View All Latest News